Asian-focused hedge funds posted steady gains in the first quarter of 2011, a volatile quarter for Asian financial markets dominated a continuum of dramatic developments, including economic, financial, environmental, social and secular.
Capital invested in the Asian hedge fund industry increased by over USD4.6bn to approximately USD88.1bn (JPY: 7.15 trillion; RMB: 573 billion) to reach the highest level since peaking in 2Q08, according to Chicago-based HFR, the leading provider of information and analysis of the global hedge fund industry.
Japanese-focused hedge funds lead other Asian regions in 1Q11, with the HFRX Japan Index gaining 0.51 per cent for the quarter; this result is inclusive of a decline of 3.34 per cent in March. Asian market volatility spiked in mid-March, with Nikkei declining over -15 per cent intra-month while the Japanese Yen appreciated sharply to a 15 year high against the U.S. dollar. Encompassing the Asian region more broadly, the HFRX Asia Composite Index posted a narrow gain of 0.02 per cent for the quarter; the broad-based HFRI Fund Weighted Composite Index posted a gain of 1.7 per cent for 1Q11.
Investors allocated over USD3.6 billion in net new capital to Asian hedge funds in 1Q11, which represents more than 10 per cent of the USD32 billion in new capital allocated to hedge funds globally in the quarter. This marks the largest quarterly inflow of capital to Asian hedge funds since HFR began publishing Asia-specific capital flows. The number of hedge funds investing primarily in Asia increased to 1055 funds, also the highest number since 2Q08.
Hedge funds investing primarily in Developed Asia produced a wide dispersion of performance for the month of March; nearly 40 per cent of these produced positive performance while less than 5 per cent posted losses larger than the decline of the Nikkei 225. Outside of Developed Asia, the HFRI Emerging Markets: Asia ex-Japan Index gained 2.33 per cent in March, ending 1Q11 with a decline of 1.72 per cent.
“Asian hedge funds, and particularly those focusing primarily on Developed Asian equity and currency markets, demonstrated both tactical flexibility and opportunistic exposure adjustments by preserving early quarter gains through the volatile March period,” says Kenneth J Heinz, President of HFR. “As the Japanese economy begins the process of recovery from the natural and environmental crises, the Asian hedge fund industry represents a powerful marketplace for global investors to access this recovery and for Asian institutions to access global investment capital.”
